India’s services sector surges to 10-month high in June

India’s services sector ended Q1 FY25 on a strong note, with the Services PMI rising to a 10-month high of 60.4 in June, reflecting robust growth in output and new orders. According to the findings of the HSBC final India Services Purchasing Managers’ Index (PMI), compiled by S&P Global, the international sales improved, particularly from Asia, the Middle East, and the US. Inflationary pressures eased, with input cost inflation hitting a ten-month low. Despite continued hiring, services employment growth moderated. Optimism about future output weakened, with only 18% of firms expecting growth. 

India’s services sector wrapped up the first quarter of FY25 on a strong footing, with growth momentum accelerating in June. The HSBC India Services Business Activity Index, or services PMI, rose to 60.4 in June from 58.8 in May, marking the strongest expansion in ten months. The PMI stood at 58.7 in April and 58.5 in March. A PMI score above 50 indicates growth in activity. This surge was driven by robust demand, cooling inflationary pressures, and improved international sales.

Activity in the services sector accounts for over 65% of the gross domestic product.

The PMI survey highlighted that both output and new order inflows increased at their fastest pace since August 2024, supported by strong domestic and overseas demand. Service companies benefited significantly from the sustained strength of the domestic market, along with a notable rise in new export business, the report noted. International sales saw notable improvement from key markets including Asia, the Middle East, and the United States. Although growth in export orders eased to a three-month low, it remained one of the highest in the survey’s history.

Pranjul Bhandari, Chief India Economist at HSBC, noted that the upturn was largely led by a sharp rise in new domestic orders. Export orders also continued to grow, albeit at a slower pace. Margins improved as the rate of increase in input costs remained lower than that of output charges, providing some relief to service providers. Business optimism remained positive, though slightly less upbeat compared to the previous month.

The PMI release indicated that the sustained growth of India’s services sector continued to support hiring activity. June marked the thirty-seventh consecutive month of employment growth, with the rate of job creation remaining above the long-term average, even though it moderated slightly from May’s peak.

On the pricing front, inflationary pressures softened. Both input cost and output charge inflation moderated in June. Input cost inflation reached a ten-month low and remained below its long-run average. Firms cited higher staff wages and salaries as key contributors to increased costs. Despite this, many service providers were able to raise their prices to cover higher costs, though the pace of increase slowed from May. Cost pressures were most intense in the Consumer Services sector, while Finance & Insurance witnessed the sharpest rise in selling prices.

Sector-wise, growth in output and new orders remained broad-based. Finance & Insurance led the sectoral growth charts, reflecting robust performance, while Real Estate & Business Services recorded the slowest growth among the sectors surveyed.

The survey indicated that while optimism about output over the next year persisted, only 18% of service providers projected growth—marking the lowest level of positive sentiment since mid-2022. Consequently, overall business confidence declined and fell below the long-term average.

The latest PMI release follows an earlier report this week indicating that manufacturing sector activity climbed to a 14-month high of 58.4 in June, supported by strong growth in output, new orders, and hiring. In comparison, the manufacturing PMI stood at 57.6 in May, 58.2 in April, and 58.1 in March. The Composite PMI Output Index increased to 61 in June, up from 59.3 in May, marking the fastest pace of expansion in 14 months. 

June saw a notable strengthening in demand for both goods and services, with total new business rising at the fastest pace since August 2024, driven by a record increase in international sales, according to the survey. However, while manufacturers reported a rise in employment, overall private sector job creation slowed due to a moderation in hiring within the services segment. Despite this, the overall rate of expansion remained well above the historical average.